Cryptos: Can Digital Assets Replace Gold as an Inflation Hedge?

26 Apr 2022, 00:50

Share this

CMC Markets Connect, a leading provider of institutional trading and technology solutions, hosted a panel debate to answer the question, "can digital assets ever replace gold as an inflation hedge?"

Held both as an in-person event with more than 115 attendees and simultaneously live-cast over the internet attracting over 250 further delegates from across the globe, a highly experienced panel of cryptocurrency professionals delivered a session that proved both engaging and highly insightful.

Chaired by Camilla Boldracchi, Institutional Services Team Leader at CMC Markets Connect, the panel included Shazia Azim, Partner, Financial Services Consulting Leader at PwC UK; Mel Tsiaprazis, Chief Commercial Officer, Bitstamp; Eva Lawrence, Chief Operating Officer, Arcane Crypto; and Michelle Chivunga, CEO and Founder, Global Policy House. An all-female panel was invited to mark one part of CMC Markets' celebration of Women's History Month.

Perhaps unsurprisingly, with such a diverse range of backgrounds, opinions were divided over the state of evolution of cryptocurrencies - even the legacy of Bitcoin - and to what extent this will impact its ability to act as an inflation hedge.

Arguably the question would have been rather more difficult to answer just six months ago, but with inflationary pressures growing globally and touching double digits even in some developed economies, now is certainly a good time to ask why the atypical price behaviours are being seen.

Views ranged between whether digital assets simply lacked the maturity, given the fact they have only been in existence for just over a decade Once that's compared against gold's reported 3,500-year legacy, the distinction is laid clear.

But arguably the more fundamental point was that despite gold and Bitcoin both having a finite supply, the two are quite simply different asset classes, and with that qualification, there should be no expectation of correlation. And that's before any consideration is given to the widely differing regulatory and taxation positions given to these two - evidently distinct - instruments.

But should the immaturity of digital assets be a cause for concern? The panel seemed unanimous in their optimism as to what the future may hold here. Whether that's because of the active interest regulators are already taking, suggesting that at a government level there's every expectation that the asset class will have longevity; the inclusive aspect that accessing digital assets and building a portfolio simply needs access to a mobile phone; or the fact that, unlike gold, mining tokens is cleaner, more transparent and thanks to developments with technology, more secure than ever, there's certainly plenty of cause for cheer.

Mainstream institutions were also said to be connecting with the potential of the asset class. For most this remains at a very modest level, with single figure percentages being invested in Cryptos, but as we - presumably - move towards the end of that bumper period of money printing, questions are increasingly being asked as to the actual value that sits behind fiat currencies.

What the future holds remains something of a conundrum but talk of Bretton - Woods III style of arrangement which could result in a wholesale shift in monetary policy adds weight to the argument that cryptos have the potential to act as a value store.

Cryptos have come a long way in recent years and as an asset built on a social ethos, that's exemplified in the way that they're inclusive, accessible and produced in a way that is mindful of the environment.

From enabling the unbanked to access savings and investment products to the idea that once you compare the energy consumption of digital assets against traditional finance or the environmental and social cost of mining physical gold, cryptos come out looking like the proverbial poster child.

And it's worth bearing in mind that the all-encompassing nature of the blockchain delivers further efficiencies when compared to systems relying on distinct execution, settlement, and ledgers.

The panel started out asking why digital assets weren't behaving more like gold in the current environment. The answers served to underline just how distinct these two asset classes are but would have left few questioning the fact that the broader crypto market seems destined for an even more vibrant future in the years that lie ahead.

To view the live stream of the event, click here.

Contact us

Find a member of our team in your local region and get in touch today

Meet the team

Contact us to find out how we can work together to open up new potential for your business. If you would like to speak directly to a local member of the team you can find their details here.